(Cost of Debt) Gillian Stationery Corporation needs to raise $600,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 8% annual coupon rate and a 10-year maturity. If the investors require a 10% rate of return:
Compute the market value of the bonds.What will the net price be if flotation costs are 11.5% of the market price?How many bonds will the firm have to issue to receive the needed funds?What is the firm’s after-tax cost of debt if its average tax rate is 25% and its marginal tax rate is 34%?
Individual or compound cost of capital) Compute the cost of capital for the firm for the following:
a.A bond that has $1,000 par value (face value) and a coupon onterest rate of 11.2 %. Interest payment are $56.00 and are paid semiannually. The bonds have acurrent market value of $1.122 and will maturs in 10 years. The firm's marginal tax rate is 34%
b. A new common stock issue that paid $1.77 last year. The firms dividends are expected to continue to grow at 7.6 % per year forever. The price of the firms common stock is now $27.33
Cost of Preferred Stock) The preferred stock of Gator Industries sells for $34.36 and pays $2.75 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 504,000 more preferred shares just like the ones it couurently has outstanding, it could sell them for $34.36 a share but would incur flotation costs of $2.85 per share. what are the flotation costs for issuing the preferred shares and how should this cost be incorporated into the NPV of the project being financed?
Q-1 (Define captital structure weights)Templeton extended care facilities, inc., is considering the acquisition of a chain of cemeteries for $400 million. Since the primary asset of this business is real estate, Templetons management has determined that they will be able to borrow the majority of the money needed to buy a business. The current owners have no debt financing but Templeton plans to borrow $300 million and invest only $ 100 million in equity in the acquisition. What weights should templeton use in computing the WACC for this acquisition?
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